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Banks battle back with incentive scheme

Update: September, 17/2012 - 10:13

HCM CITY (VNS)— The race for capital among commercial banks has become fierce after the State Bank of Viet Nam issued new regulations on the inter-bank market, which took effect on September 1.

In late August, deposit interest rates at some commercial banks in HCM City increased between 0.5 per cent and 1 per cent per year, compared with rates recorded earlier last month.

As a result, the interest rate on deposits of fewer than 12 months stands at between 11 and 12 per cent, much higher than the central bank's 9 per cent cap.

To dodge the SBV's deposit interest-rate cap, promotion programmes, gifts and cash are offered by banks to encourage people to deposit their savings.

For example, some banks give depositors savings books with an interest rate of 9 per cent per year for deposits with terms of under 12 months, as regulated.

But when the customer makes the deposit, the bank subtracts the difference between the regulated interest rate and the offered bank rate, and gives the customer upfront an amount of cash equivalent to the difference, depending on the length of the deposit term.

As regulated, banks can offer the interest rate of 12 per cent for loans with terms of more than one year.

Some lenders follow this regulation but then break it by allowing depositors to withdraw their money before the maturity date.

There are several causes for these actions, officials have said.

The general director of a bank whose head office is located in District 1 said the sharp increase in the price of gold in recent days had made capital mobilisation more difficult for banks.

In addition, the gold price on the domestic market has risen so investing in gold can bring much more profit than deposits at banks.

Some lenders said that on June 16, the SBV issued Circular No 21/2012/TT-NHNN stipulating terms for lending and borrowing, as well as the time for trading of valuable papers among credit institutions and foreign bank branches.

According to the circular, conditions for participating in the transactions on the inter-bank market include requirements on technical infrastructure, professional staff and internal provisions on operational procedures and risk management.

Also, banks would not be eligible if they were suspended indefinitely or temporarily from lending and borrowing, and had valuable papers repossessed in the inter-bank market.

They also must not have overdue loans of 10 days or more in the inter-bank market at the time of conducting transactions for borrowers. In addition, the period of the transaction must be less than one year.

Because these strict regulations have reduced opportunities for banks to get access to loans on the inter-bank market, they have to attract more capital from people's savings, deputy director of the Orient Joint Stock Commercial Bank (OCB) Pham Linh told Tuoi Tre (Youth) newspaper.

Nguyen Huu Dang, general director of HDBank, said the banks were trying to attract more capital to ensure liquidity because capital demand often increased at the end of the year, while people also tended to withdraw their deposits to prepare for the year's biggest holiday (Lunar New Year, or Tet).

A deputy director of a State-run bank, who declined to be named, said that the banks wanted to attract more people's savings in order to invest in government bonds and treasury bonds to ensure liquidity reserve.

The competition among banks on deposit interest rates has affected the central bank's policy of cutting lending interest rate.

A director of a company specialising in the manufacturing of laminate flooring products said that, although the central bank had asked the banks to lower the lending interest rate of enterprises'old loans, the company had not benefited from the policy because of the strict regulations.

The company had borrowed VND15 billion (US$714,000) from the bank at a rate of 19.5 per cent per year. To keep the lending rate on this old loan at 15 per cent, the company was asked to pay at least between 25 and 30 per cent of the loan, she said.

"If we have plentiful capital, we do not need to ask for an interest-rate reduction," she said.

Vu Dinh Phuong, chairman of the Viet Nam Fan Joint-Stock Company, said that the interest rates of his company's old loans were not cut, as regulated by the central bank.

"We have to pay all old loans worth a total of VND15 billion at the rate of 18 per cent per year in order to borrow new capital at other banks at a rate of 15 per cent per year," Phuong said. — VNS

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